Want a lower tax bill? So do Apple and Genentech


For-profit companies don’t typically downplay the value of their assets.

But when it comes to paying property taxes, some of Silicon Valley’s largest companies are going head to head with officials to try to prove that some of the equipment and machinery they used to become global titans are actually worth a lot less than what county tax assessors say.

In the Bay Area, Genentech and Apple are particularly aggressive in opposing tax assessors — elected officials who determine the value of property for tax purposes. Both companies are leading years-long efforts to recoup tens of millions of dollars they say they’ve overpaid in taxes on buildings, land, lab equipment, computers and other items.

Each company has far more appeals contesting assessors’ valuation of their property — and are disputing far greater amounts of property — than any other company in the counties in which they are based.

Genentech, the biotech giant best known for making blockbuster cancer drugs, has been embroiled in an 18-year battle with San Mateo County over the value of hundreds of pieces of equipment and machinery and dozens of parcels of land in its sprawling South San Francisco headquarters. The company is also the leading appealer of tax assessments in Solano County, where it has large drug-manufacturing facilities.

In San Mateo County, Genentech has 653 unresolved appeals before the county tax assessment appeals board, which hears disputes brought by taxpayers that disagree with the assessor’s appraisal of their property, according to the county counsel’s office. No other large employer even comes close; the next is BioMed Realty, a real estate investment trust, with 34 appeals. United Airlines, which pays the most property taxes in the county, has 12. Facebook and biotech firm Gilead Sciences, both with headquarters in the county, have none.

San Mateo County believes Genentech should be paying taxes on $33 billion worth of property, but Genentech says its properties are worth much less, around $14 billion, according to the county counsel’s office. The difference, $19 billion, amounts to $190 million in taxes that Genentech, if it wins all of its appeals, could get back from county coffers.

A Genentech spokeswoman, Rebecca Phillips, said by email that the figures cited by county officials do not accurately represent the amounts that are “truly in dispute,” but declined to provide figures the company believes more accurately represent the situation, citing pending litigation over the matter.

Statewide, the vast majority of assessment appeals — which are handled at the county level — are resolved within two years, the statute of limitations under state law. But some of Genentech’s cases date back to 2000, and carry over each year at the request of the company, or because litigation arising from the appeals has not been resolved. Genentech routinely files appeals listing its properties at roughly 50 percent of the assessed value, according to documents compiled by the county counsel’s office.

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Phillips said the disputes cover a very small percentage of the taxes Genentech pays to the county each year. In tax year 2018-19, Genentech properties were assessed at $2.3 billion, second only to United Airlines’ $2.4 billion. Genentech estimates that it will pay $30 million in property taxes in 2018-19, and said the county’s assessment doesn’t include recent property purchases the company has made.

Many of the disputes stem from differences in opinion on how quickly the equipment at Genentech’s research and manufacturing facilities depreciates.

“I don’t want to imply someone doesn’t have a right to contest their taxes if they believe the assessor has made an error. But that’s not what Genentech is doing,” said Deputy County Counsel Rebecca Archer. “They’re just filing and seeing what sticks, like throwing spaghetti at the wall. It’s working the system to the max in a way that’s not productive for taxpayers, for the companies (or) for the assessor.”

There is nothing illegal or unethical about appealing assessments. Companies are entitled to contest property assessments they believe are done improperly or inaccurately. But the tactics taken by Genentech, Apple and other large corporations, county assessors say, border on abusing the system.

Seeking lower taxes











County*

Company with most

open appeals

Company with most

in disputed value

Source

San Mateo

Genentech, 653

Genentech, $19 billion

County Counsel’s Office

Santa Clara

Apple, 489

Apple, $8.5 billion

Assessor’s Office

San Francisco

Walgreens, 60

SRI Nine Market Square, $2.2 billion

Assessment Appeals Board

Solano

Genentech, 54

Genentech, $5.6 billion

Assessment Appeals Board

Napa

Niebaum Coppola Estate, 53

N/A

Board of Supervisors

Marin

BioMarin, 52

BioMarin, $565 million

Board of Supervisors

Sonoma

AU Energy, 37

Keysight Technologies, $305 million

Board of Supervisors

*Information for Contra Costa and Alameda counties is unavailable.














CompanyNet assessed value, 2018-19

United Airlines

$2.378 billion

Genentech

$2.319 billion

Gilead Sciences

$1.75 billion

Hibiscus Properties (a Facebook subsidiary)

$1.107 billion

Google

$1.09 billion

ARE San Francisco

$780 million

Slough BTC

$647 million

Facebook

$641 million

Oracle

$513 million

Serramonte Center

$494 million

Source: San Mateo County assessor’s office

The practice, they say, forces local governments to hold millions of dollars in limbo that would otherwise go to taxpayer-funded programs like schools, roads and special districts, in case they have to issue refunds to the companies.

Genentech says its goal is to pay the amount of taxes it believes is legally owed.

“We do not believe we have been properly assessed over the years, which is why we go through the state-mandated property tax appeals process,” Phillips said. “We believe the approach taken by the county has resulted in the overbilling of taxes. But while these disputes have been ongoing, Genentech has paid in full all the tax bills sent by the county.”

Along the way, San Mateo County and Genentech have both nabbed incremental wins. In 2011, the county agreed to give Genentech $26.5 million in tax credits to resolve assessment appeals between 1990 and 1999. In May, a San Mateo County Superior Court judge sided with the county, denying Genentech’s attempt to get a $9.5 million refund in property taxes over appeals from 2000 to 2005. Genentech, which could appeal the court’s decision, declined to say whether it plans to do so.

Tax experts say it is not unusual for companies to dispute assessments of high-value property, which is worth billions of dollars. If those assessments were to be lowered even slightly, it could mean millions in tax savings. But most companies and county assessors find a way to resolve the disputes without going to court for years.

“What’s most surprising is, given the high stakes and they’re a repeat player, that they haven’t been able to find a way to avoid wasting everyone’s time,” said Darien Shanske, a UC Davis law professor and expert on state and local taxation.

The court decision “seems to suggest (the county’s position) has some merit, it’s Genentech that’s being overly aggressive,” he said. “It’s possible the county is being aggressive. It’s possible (biotech equipment) is not the easiest thing in the world to value.”

In Santa Clara County, Apple is the leading appealer of tax assessments, with 489 open cases dating back to 2004, disputing $8.5 billion in property value, according to the assessor’s office. Apple is largest taxpayer in the county, paying $56 million in tax year 2017-18.

An Apple spokesman declined to comment. In 2016, amid a dispute with the European Union over billions in taxes, CEO Tim Cook wrote in an open letter that “in every country where we operate, Apple follows the law and we pay all the taxes we owe.”

In Santa Clara County, more than half of the $76 billion in disputed assessments stems from property belonging to 10 large tech companies, including Apple, Google, Applied Materials and Sun Microsystems.

Applied Materials, for instance, has 94 appeals totaling $6.1 billion in disputed value. Google has 132 appeals covering $2.7 billion in disputed value.

“These are major cases, and publicly, they kind of go under the radar screen,” said Santa Clara County Assessor Larry Stone, whose office has settled multimillion cases with IBM and Cisco over tax assessments. “How much will a company pay in attorneys’ fees and expert witnesses for a potential payday of $100 million? They’ve spent millions, but there’s millions at stake.”

The source of many of the disagreements is high-tech equipment, which is more complicated to assess because of complex depreciation rules, Stone said.

“The sophistication of our companies and the complexity of our high-tech industries is different,” Stone said. “Machinery, equipment, computers, fixtures … all the stuff going into (the) Apple spaceship, there’s lots of money inside of it aside from land and buildings. So it can get very complicated.”

Some claims reflect extreme differences in estimated values. In one appeal filed in 2015, Apple said that a cluster of properties in and around Apple Park in Cupertino that the assessor valued at $1 billion was worth just $200. In another, property that the assessor valued at $384 million was, in Apple’s view, worth $200, according to an appeal application.

Other assessors say large corporations are using their resources to hire attorneys and expert witnesses to eventually wear down county governments.

“The megacorporations have enough resources and money to wear a county down to lower their taxes by appealing, appealing, appealing,” said Gus Kramer, Contra Costa County assessor, whose office tussled with Chevron for a decade over the value of the oil company’s Richmond refinery. They eventually reached an agreement in 2013 that dismissed each side’s multimillion-dollar claims against the other.

A Chevron spokesman said the company is one of the largest property-tax payers in the county and is committed to paying its fair share of taxes to support public services.

“We all pay our taxes on our house, but the largest taxpayer or second-largest doesn’t want to pay their fair share,” Kramer said. “They want to pay half as much as they were before. Wouldn’t we all?”

Catherine Ho is a San Francisco Chronicle staff writer. Email: cho@sfchronicle.com Twitter: @Cat_Ho





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